USD sell-off unlikely to persist – MUFG

USD stages rebound after heavy sell-off. Economists at MUFG Bank analyze Dollar’s outlook.

Is the recent USD sell-off overdone?

FOMC minutes revealed that FOMC participants were all in agreement that they should ‘proceed carefully’ and policy decisions at every meeting would continue to be ‘based on the totality of incoming information’.

The FOMC minutes have not altered market expectations for Fed policy. The price action in the FX market appears to suggest more that the US Dollar had become oversold.

The recent move lower for the US Dollar has not been fully backed up by yield spreads moving against the US. It is one of the reasons why we have been cautioning against a more extended sell-off in the near-term.